Activity in services sector falls to record low

In another sign of a slowing economy, Australian Industry Group's services sector index has fallen to a record low. And the mining sector, which is widely perceived to be buttressing the Australian economy, is increasingly concerned about rising costs.

Transcript

PHILLIP LASKER, PRESENTER: There are more signs pointing to a slowdown likely to influence the Reserve Bank. The Australian Industry Group Services Sector Index has fallen to a record low, and the mining sector, which is widely perceived to be buttress the Australian economy is increasingly concerned about rising costs. Simon Palan with the story.

SIMON PALAN, REPORTER: The services sector makes up two thirds of the Australian economy, and by the latest measure it's not looking healthy. Activity in this sector has slumped to a record low, retreating for the fourth straight month under the burden of high interest rates and rising fuel prices.

HEATHER RIDOUT, AUSTRALIAN INDUSTRY GROUP: I think it's reflecting the lack of business and consumer confidence. The consumer sectors have been hit quite hard, business confidence is also reflected in some of the services areas.

SIMON PALAN: The Australian Industry Group's Services Index has fallen 2.6 points to 42.8 for July, the worst result in the series which began five years ago.

HEATHER RIDOUT: What is really worrying is that it's a very ordinary outlook. The new orders part of the index was very, very weak indeed.

SIMON PALAN: As was the ARG's Employment Index. It's declined sharply by six points.

CHRIS CATON, BT FINANCIAL: It's not just today's survey. There was ANZ job vacancies earlier in the week, there were the announcement of lay-offs from, and the list is getting longer, Starbucks, Don, Qantas etc.

HEATHER RIDOUT: Look I think we've seen the best of jobs numbers for some time, particularly in the eastern states like NSW and Victoria.

SIMON PALAN: The labour market has been one of the most resilient parts of the Australian economy and any weakness in jobs adds greatly to the case for an interest rate cut. The official employment figures are out on Thursday.

CHRIS CATON: That's likely to show a small employment gain of say 5,000, and perhaps a tick up in the unemployment rate.

SIMON PALAN: Another resilient part of the Australian economy is the mining sector, but it too is showing early signs of being squeezed by high energy costs and interest rates.

MITCH HOOKE, MINERALS COUNCIL: The energy costs, costs of capital, production inputs, labour; they are all factors that are leading to some of our companies working to double digit inflation.

SIMON PALAN: If the Reserve Bank needs more evidence to justify a rate cut in the coming months, it doesn't need to look far.